Country Risk Modeling in Indonesia: An Empirical Approach

This study is intended to analyze the influence of internal and external risk factors considered relevant influencing the country risk. We find result of long term VECM estimation indicating that the exchange rate, the interest rate of certificate of Bank Indonesia (SBI) for 6 months and the world economic growth have positive and significant influence to country risk. Inflation, Indonesia economic growth, the Fed, and MSCI ACWI IMI return have negative and significant influence to country risk. All hypotheses presented in this study are theoretically and statistically accepted, except that the hypothesis on inflation is rejected because it is in controversy with theory, although statistically it has significant influence to the country risk in Indonesia.Meanwhile the estimated output of VECM in a short term, the exchange rate, the interest rate of SBI for 6 months and the world economic growth have positive and significant influence to country risk. The Fed and MSCI ACWI IMI return have negative and significant influence to country risk. The hypotheses testing accepted from the estimated VECM in short term are the exchange rate, the SBI interest rate in 6 months, the Fed, the world economic growth and the return of MSCI ACWI IMI.